Cowen: Economy cannot sustain level of wage rises

The economy cannot sustain the level of wage increases workers have seen in recent years, Finance Minister Brian Cowen warned today.

Talks on a new national pay agreement begin later this year but Mr Cowen said excessive pay rises will ultimately affect jobs, competitiveness and Government spending.

“If pay increases under the next and future pay agreements are not kept at a moderate level, the inevitable results in time are going to be job losses in vulnerable parts of the private sector,” he said.

“Public service pay costs will also squeeze the resources which would otherwise be available for tax reductions or service improvements,” he told today’s Irish Bank Officials Association annual conference in Dublin.

Mr Cowen said that Ireland is now increasingly regarded as a relatively higher wage economy after wage increases negotiated in recent years.

Under the Programme for Prosperity and Fairness, (2000-2002) pay increased by an annual average of almost 6% and some employers reached agreements for above that level.

Rises under Sustaining Progress (2003-2005) were lower but still averaged about 4% a year.

“These increases are markedly above those being experienced in major European economies.

“For example, in 2004 wage settlements in the UK were about 3% while in Germany they were about 2%.”

Mr Cowen said the talks on a new national agreement to succeed Sustaining Progress must not affect the long-term competitiveness of our economy.

“The inescapable consequence of higher wage inflation in Ireland is the diminished attractiveness of the Irish economy for investment and a slowdown in the pace of employment creation and economic growth.”